With two key events — the general elections and the Union Budget — behind them, the focus seems to have shifted to the defensive or safe haven stocks from the fast moving consumer goods (FMCG), information technology (IT) and pharmaceutical sectors.
Since the presentation of the Union Budget in July, the S&P BSE IT, S&P BSE Healthcare and the S&P BSE FMCG indices have outperformed the markets by gaining around three to five per cent.
In contrast, the S&P BSE Sensex and the CNX Nifty have seen a marginal gain.
On the other hand, stocks from the reform and policy oriented sectors like realty, oil and gas, power and capital goods have taken a backseat and underperformed, with their respective indices correcting between three to nine per cent during this period.
However, from a year-till-date (YTD) perspective, the defensives still lag the cyclical indices by a wide margin.
Experts attribute this recent shift in preference and the resulting outperformance to a variety of reasons, including the geopolitical tension in West Asia.
Cyclical stocks had a good run earlier and are now correcting and consolidating before the next round of strong reform measures kick in, they say.
“Many overseas funds that mark their portfolio to the benchmark indices usually have a typical requirement of outperforming the indices.
So in order to outperform them, it is obvious that they look at safe bets, especially IT and pharma, more from protecting the portfolio from going down under," said Deven Choksey, managing director and CEO, K R Choksey Shares and Securities.
Analysts suggest that the recent stock movement has more to do with the results season, which coincided with the Union Budget presentation and the markets are doing a reality check after seeing the earnings growth and the valuations at which the stocks are currently available at in this backdrop.
"Pharma stocks have been doing well given the healthy sales to the US and even the sales in the domestic market have picked up in the last quarter. So these things would have contributed to the stock performance," said Deepak Jasani, head of retail research at HDFC Securities.
"As regards FMCG, the expectations were low and the recent quarter results have either been in-line or exceeded expectations.
In the IT space as well, the results were better than the lowered expectations, especially TCS and HCL Technologies," he adds. Outlook Given the run up seen in the cyclical stocks and with the tide now turning in favour of the safe haven bets or defensives, experts suggest that one needs to be careful and stock specific while making a fresh investment decision.
Jasani of HDFC Securities suggests the markets can correct from the current levels and as a result, both cyclical and defensive stocks can dip. "As an investment theme, we like PSUs, oil and gas, banks and stocks that will benefit from infrastructure spend but at lower levels," he says.
"As an investment strategy, investors need to be stock specific since they now also have the benefit of earnings of these companies to look at.
In the cyclical space, one must look at revenue visibility and stability in earnings before allocating fresh resources. Just because prices have corrected is not a good enough reason to invest in stocks from the capital goods, power and infrastructure sectors," points out Taher Badshah, senior vice president and fund manager, Motilal Oswal AMC.
Choksey prefers buying HCL Technologies, Infosys, Glenmark, Sun Pharma, Cipla, ITC, Britannia Industries, Dabur India and Hindustan Unilever (HUL) on a decline.
